Markets are an efficient way of allocating society’s resources. However, the magic of markets work under some ideal conditions. One important conditions is that of complete information. If market participants have asymmetric information markets fail to perform efficiently. This is precisely the problem with higher education in Pakistan.An economist is someone who design markets to solve society’s problem of allocating scarce resources. This may sound old to many ears but, trust me, the element of design is new. This is what Esther Duflo, one of the most promising economist of our time, has (re)emphasized recently. Let us have a look at the market of higher education in Pakistan. What are the major problems? What are the causes behind these problems and how to fix them?As Milton Friedman once said, in economics you can reduce all problems to demand and supply. First there was the big bang reforms of early 2000s that created, overnight, a huge gap in demand and supply of university faculty. On supply side, there were funds but no human resources. On the demand side there were students but no teachers. In the jargon of experiment design, an experiment was started but subjects were not there!Markets responded to this gap between demand and supply. Short term solutions included multiple engagements of existing human resources. However, there were huge funds for universities to offer professional degrees, and to expand the scope of their faculties. Incentives were there. Unemployment was there. And most dangerous of all aspects, information was incomplete. In a word, the recipe for market failure was complete! No mechanism was there to judge the capacity or quality of existing institutions to wrestle with market forces unleashed by sudden awakening of public authorities. The prevailing wisdom was that, the homing pigeons (HEC funded foreign PhD scholars) will fill out the gap over time.Strange are the ways of markets. Especially when the forces are manipulated to transform scarcity value of resources, markets don’t direct resources by invisible hand but respond by invisible fists and kicks. The existing opportunities cannot remain unexploited. The clever arrangements were discovered. Mafias propped up. The university management was happy as long as they could secure the public funds. Again, there was no information about quality. Sadly too, nobody could foresee the rift that was going to appear between local and foreign degree holders!There is no assessment that what percentage of HEC homing pigeons actually landed and stayed here. But the current situation at universities is troubling, to say the least. The basic problem still is that of demand and supply trying to match each other under asymmetric information. But now the supply side has managed to come up significantly. For many this higher supply is at the cost of quality. Those who are on the demand side __ students, parents, and industry participants __ are suffering from incomplete information. Nobody knows about the problem solving ability of those sitting in the ivory towers of our universities. (One can shed tears on the quality of research and the application of knowledge in solving practical problems that we are facing). Given the few options available to them, students are not in a position to care who is going to teach them, what courses, and what the teaching track record of their teacher is. Their interest is to save time (allegedly at the cost of money) and get degree. Most worrisome is the no voice strategy adopted by parents, whose hard earned resources are wasted on such degree programs.If the current situation on the demand side is troubling, it is horrible on the supply side. Universities need to increase their research output to climb up the list of HEC university ranking. This explains the universities preference for MPhil and PhD programs: they help increase research output which in turn help the institute get good HEC rating, something that can be drummed to attract students. Again, the problem is that of asymmetric information: quality is unknown, gaming and numbering is there.Second comes the problem of effort. If the minimum effort required in attaining MPhil or PhD degrees is high then probably it deters some participants on the demand side. But that hurdle has reduced. There are various factors behind it. There are groups operating at university levels controlling supply side (one of my colleague labelled such groups mafias). A group membership will help you get PhD in 4 to 6 years, a job in the same or some other linked department. Your life will be easier and happier.Third comes the quality aspect. When you are part of mafia system then they will also save you from various regulatory issues related to quality. You can publish in mafia controlled journals and your prospects of getting promoted (on the basis of publications, thesis supervision, and papers read in conferences) will be very high.One can ask: why mafia should let anyone come and join them? No mafias don’t let anyone come and join them. There are two types of recruitments. One is reference based. If you know some mafia member he or she will help things out for you. Another way is to prove your loyalty. This is done by wasting years in serving (mostly non-professionally) the big wigs in the mafia. Once you prove your loyalty and durability, you will be admitted.The mafia operate as a team. There are perks and privileges associated with mafia membership. You can be invited as an external members in MPhil theses. It permits you a sufficient easy money in one or two days. Similarly, you can dodge the rules of your institute and serve some other university in some capacity (not only as a visiting faculty which is somewhat riskier).The mafias in different universities serve each other’s interest. So that they can easily achieve targets or standards set by their employer or the regulator.This is the state of higher education in Pakistan. It is a challenge to redesign the market for higher education in a way that insulates the quality from the prevailing malaise. We shall take up that challenge in the next posts.